India solve Venezuelan defaults
The Commerce Ministry has proposed a mechanism to address the issue of non-payment of dues by Venezuelan importers to Indian exporters. The ministry has written to the Venezuelan government to resolve the issue of payment defaults. However, Venezuela has not given its approval to the proposed payment mechanism. Talks on the issue will soon be held with the RBI.
Under the proposed payment mechanism when Indian importers pay for oil and other imports from Venezuela, a certain portion of the payment will be held by an Indian public sector bank in Venezuela.
- Then through a vostro account that money will be kept in the Indian branch of that public sector bank and will later be converted to Indian rupees. (‘Vostro’ is an Italian term meaning ‘yours’, and vostro account refers to holding ‘your’ money or Venezuela’s money in this case.)
- When India’s exports to Venezuela, the Venezuelan buyer (importer) will certify that they have received the goods and instruct the concerned Venezuelan bank to release the payment to the concerned Indian exporters. This instruction will be passed on to the Indian public sector bank in Venezuela and then to Indian branch. Finally, Indian branch will release the payment to Indian exporters by debiting from the vostro account.
Background:
Venezuela, an economy that relies on oil exports, has been severely hit by a drastic fall in oil prices. This has in turn resulted in the value of the Venezuelan currency plunging to record lows and a high demand for dollars. India’s goods exports to Venezuela in 2014-15 were $258 million. Owing to the crisis in Venezuela, India’s exports in FY16 (April-February) have touched only $125.5 million. The trade balance is still hugely in Venezuela’s favour.
